IN THE SUPREME COURT OF MISSISSIPPI
NO.2011-CA-01274
COMMONWEALTH BRANDS, INC., THE
CORR-WILLIAMS COMPANY AND
VICKSBURG SPECIALTY COMPANY
APPELLANTS
vs.
J. ED MORGAN, COMMISSIONER OF
REVENUE OF THE DEPARTMENT OF
REVENUE
APPELLEE
ON APPEAL FROM THE CHANCERY COURT OF THE FIRST JUDICIAL
DISTRICT OF HINDS COUNTY, MISSISSIPPI
CASE NO. G-2009-1681 W/4
HONORABLE PATRICIA D. WISE
BRIEF OF APPELLANTS THE CORR-WILLIAMS COMPANY AND
VICKSBURG SPECIALTY COMPANY
ORAL ARGUMENT REQUESTED
Stephen J. Carmody, Esq., MSB
Louis G. Fuller, Esq., MSB __
Brunini, Grantham, Grower & Hewes,
190 East Capitol Street, Suite 100 (39201)
Post Office Drawer 119
Jackson, Mississippi 39205
Telephone: (601) 948-3101
Facsimile: (601) 960-6902
scarmody@brunini.com
lfuller@brunini.com
Attorneys for The Corr-Williams Company
and Vicksburg Specialty Company
IN THE SUPREME COURT OF MISSISSIPPI
NO.2011-CA-01274
COMMONWEALTH BRANDS, INC., THE
CORR-WILLIAMS COMPANY AND
VICKSBURG SPECIALTY COMPANY
APPELLANTS
vs.
J. ED MORGAN, COMMISSIONER OF
REVENUE OF THE DEPARTMENT OF
REVENUE
APPELLEE
CERTIFICATE OF INTERESTED PERSONS
The undersigned counsel of record certifies that the following listed persons have an
interest in the outcome of this case. These representations are made in order that the Justices of
the Supreme Court and/or the Judges of the Court of Appeals may evaluate possible
disqualification or recusal:
1.
Commonwealth Brands, Inc., Appellant;
2.
The Corr-Williams Company, Appellant;
3.
Vicksburg Specialty Company, Appellant;
4.
1. Ed Morgan, Commissioner of Revenue of the Mississippi Department of
Revenue, Appellee;
5.
Fred L. Banks, Luther T. Munford, R. Gregg Mayer, Phelps Dunbar, LLP; Robert
1. Brookhiser, Elizabeth B. McCallum, Baker Hostetler, Attorneys for
Commonwealth Brands, Inc.;
6.
Stephen 1. Carmody, Louis G. Fuller, Brunini, Grantham, Grower and Hewes,
PLLC, Attorneys for The Corr-Williams Company and Vicksburg Specialty
Company;
7.
Gary Stringer, Attorney for J. Ed Morgan; and
1
8.
Honorable Patricia D. Wise, Hinds County Chancery Court Judge.
SO CERTIFIED, this the
3/~ day of
January, 2012.
~~~
STEPHEN J~ CARMODY,
Attorney for The Corr- Williams Company and
Vicksburg Specialty Company
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TABLE OF CONTENTS
CERTIFICATE OF INTERESTED PERSONS ........................................................................... i
TABLE OF CONTENTS ................................................... """"'''''''''''''''''''''''''''''''' ................. iii
TABLE OF AUTHORITIES .............................. """'''''''''''''''''''''''''''''''' .................................. iv
INTRO D U CTI ON ........................................................................................................................ 1
STATEMENT OF THE ISSUES .................................................................................................. 1
STATEMENT OF THE CASE ............................... " .............................................. """'" ............. 1
STATEMENT OF THE FACTS .................................................................................................. 2
SUMMARY OF THE ARGUMENT .......................................................................................... .3
ARGUMENT ............................................................................................................................... 3
I.
The NSM Tax Discriminated Against Interstate Commerce ............................... .3
II.
A Tax to be Collected From Out-of-State Consumers is an Exercise
of Extraterritorial Jurisdiction Which Violates the Due Process Clause ............. .4
III.
Corr-Williams and Vicksburg Specialty Are Entitled to an Award of Attorneys'
Fees Under 42 U .S.C. § § 1983 and 1988 .............................................. ,. .............. 4
IV.
Taxes, Penalties and Interest Related to the NSM Tax Cannot be Collected
From Corr-Williams and Vicksburg Specialty .. """" ........................................... 5
CONCLUSION ............................................................................................................................. 7
CERTIFICATE OF SERVICE ........................... ""'''''''''''''''''''''''''''''''''''' ""'''''''''''''''' .............. 8
111
TABLE OF AUTHORITIES
FEDERAL STATUTES:
42 U.S.C. § 1983 .......................................................................................................................... .4
42 U.S.C. § 1988 .......................................................................................................................... .4
OTHER STATUTES:
Miss. Code Ann. § 11-13-11 ......................................................................................................... 4
Miss. Code Ann. § 11-13-15 ......................................................................................................... 6
Miss. Code Ann. § 27-69-13 ........................................................................................................ .4
Miss. Code Ann. § 27-69-41 ..................................................................................................... 5, 6
Miss. Code Ann. § 27-70-1, et seq ................................................................................................ 6
Miss. Code Ann. § 27-70-5(1)(b) ................................................................................................ 6
Miss. Code Ann. § 27-70-5(4) ..................................................................................................... 5
Miss. Code Ann. § 27-70-19 ..................................................................................................... 5, 6
Miss. Code Ann. § 27-70-19(1) ................................................................................................... 6
Miss. Code Ann. § 27-77-1, et seq ................................................................................................ 4
IV
INTRODUCTION
Appellants The Corr-Williams Company ("Corr-Williams") and Vicksburg Specialty
Company ("Vicksburg Specialty") (sometimes referred to collectively as the "Wholesalers") join
in the Introduction, the Statement of the Issues, the Statement ofthe Case, and the Statement of
Facts, and Summary of Argument submitted by Co-Appellant Commonwealth Brands, Inc.
("Commonwealth").
For the reasons set forth in Commonwealth's Brief and one other additional reason that
applies only to wholesalers like Corr-Williams and Vicksburg Specialty, the Chancellor erred as
a matter of law.
STATEMENT OF THE ISSUES
Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the Statement
of the Issues as set forth by Co-Appellant Commonwealth Brands. In addition to the succinctly
stated issues (1-3) set forth by Commonwealth, Wholesalers submit the following additional
issue:
4.
To the extent the Judgment allows the Department of Revenue to seek unpaid
NSM taxes, interest and penalties from Wholesalers, it is invalid and the Department of
Revenue's position is erroneous.
STATEMENT OF THE CASE
Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the Statement
of the Case as set forth by Commonwealth in its Brief.
In addition to Commonwealth's statement, Wholesalers would also add that the
Department of Revenue has insisted in court pleadings and in its cross-appeal that Wholesalers
are liable for taxes, interest and penalties and that the judgment amount can be levied on their
1
injunction bonds. However, the applicable statutes and the legislative intent are clear -- the NSM
fee is imposed on out-of-state "non-settling" manufacturers, not in-state wholesalers of the NSM
products. Accordingly, Corr-Williams and Vicksburg Specialty are not liable for any of the
NSMtaxes.
STATEMENT OF THE FACTS
Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the Statement
of the Facts as set forth by Co-Appellant Commonwealth in its Brief of Appellant. In addition,
Wholesalers provide the following additional relevant facts:
Commonwealth and Corr-Williams filed a Complaint and Motion for Expedited
Declaratory and Injunctive Relief against the Department of Revenue on October 9, 2009,
seeking preliminary and permanent injunctive relief from the Department's collection of the
NSM tax. (R.E. 2, 3).
In their Complaint and Motion, Commonwealth and Corr-Williams
contended that the NSM tax violates the Interstate Commerce Clause as it is a discriminatory tax
on the distribution of cigarettes in interstate commerce and violates the Due Process Clause when
passed on to the ultimate consumer or user in another state. (R.E. 2, 3). On October 12, 2009,
Corr-Williams filed a Motion for Temporary Restraining Order against the Department. (R.E. 4).
A TRO was issued against the Department on October 19, 2009 and subsequently continued on
October 29, 2009. (R.E. 5).
On November 9, 2009, the Department filed an Answer to Plaintiffs' Complaint, denying
Plaintiffs' claims. (R. 114) On December II, 2009, the trial court entered a preliminary
injunction against the Department of Revenue. (R.E. 6).
Vicksburg Specialty, another cigarette wholesaler adversely affected by the NSM tax,
filed a motion to intervene in this lawsuit on December 18,2009. (R.E. 7). After the trial court
granted the wholesaler's motion, Vicksburg Specialty filed a Motion for Expedited Declaratory
2
and Injunctive Relief on January 13, 2010, and the trial court issued a preliminary injunction
against the Department of Revenue. (R.E. 8,9).
After the parties submitted proposed findings of fact and conclusions of law, the trial
court entered an Order and Opinion on August 9, 2010. (R.E. 10). In the Order and Opinion, the
trial court applied the four-part test from Marx for determining whether a taxation statute in
accordance with the Commerce Clause and concluded that the NSM tax statutes did not violate
the Commerce Clause or Due Process Clause. (R.E. 10).
On September 1,2010, the Department of Revenue filed its Motion for Entry of Final
Judgment. (R. 344). In its motion and in its Cross-Appeal, the Department of Revenue seeks to
assess and collect the NSM taxes at issue in this lawsuit directly from Corr-Williams and
Vicksburg Specialty. For the reasons set forth more fully below, the Supreme Court should
reject the Department of Revenue's argument seeking assessment of the NSM tax, interest, and
penalties against the Wholesalers.
SUMMARY OF THE ARGUMENT
Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the Summary
of the Argument as set forth by Co-Appellant Commonwealth in its Brief of Appellant. In
addition to these arguments, Wholesalers further identify an additional argument:
Taxes, penalties and interest related to the NSM Tax cannot be
collected from Corr-Williams and Vicksburg Specialty.
ARGUMENT
I.
The NSM tax discriminated against interstate commerce.
Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the arguments
of Co-Appellant Commonwealth at Section I of its Brief of Appellant.
3
II.
A tax to be collected from out-of-state cousumers is au exercise of extraterritorial
jurisdiction which violates the due process clause.
Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the arguments
of Co-Appellant Commonwealth at Section II of its Brief of Appellant.
III.
Corr-Williams and Vicksburg Specialty are entitled to an award of attorneys' fees
under 42 U.S.c. §§ 1983 and 1988.
Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the arguments
of Co-Appellant Commonwealth at Section III of its Brief of Appellant.
In addition to the arguments presented by Commonwealth, Corr-Williams and Vicksburg
Specialty present the following additional argument:
Neither Miss. Code Ann. § 11-13-11 nor § 27-77-1, et seq., provide adequate relief to
wholesalers such as Corr-Williams and Vicksburg Specialty. The first statute provides solely
injunctive relief which is insufficient to compensate Corr-Williams and Vicksburg Specialty for
the ill-implemented NSM tax statute.
Pursuant to Miss. Code Ann. § 27-77-\, taxpayers have rights to receive refunds.
However, in order to receive a refund, a taxpayer must show that it "did not directly or indirectly
collect the tax from anyone else." Vicksburg Specialty and Corr-Williams are not considered
"taxpayers" for purposes of the statute, although they have been asked by manufacturers to bear
the cost of the unconstitutional NSM tax at the risk of losing distribution business from these
manufacturers. Further, in order to follow the statutory NSM tax scheme, Vicksburg Specialty
and Corr-Williams must pass this tax along to the "ultimate consumer or user." Miss. Code Ann.
§ 27-69-13. Because Vicksburg Specialty and Corr-Williams cannot show that they both satisfy
the NSM tax statute and that they did not pass along the NSM tax burden, then they cannot
receive relief pursuant to this statute. Thus, these Mississippi statutes do not provide a plain,
efficient, speedy remedy for Vicksburg Specialty and Corr-Williams. In the event this Court
4
rules in favor of the Appellants, reversing the lower court's decision, Vicksburg Specialty and
Corr-Williams should be allowed to collect reasonable attorneys' fees in an amount determined
by the Chancellor.
IV.
Taxes, penalties and interest related to the NSM Tax cannot be collected from CorrWilliams and Vicksburg Specialty.
Pursuant to Miss. Code Ann. § 27-70-5(4), the Mississippi Legislature authorized the
assessment and collection ofthe NSM tax from non-settling cigarette manufacturers. "[T]he fee
imposed by this chapter is imposed, collected, paid, administered and enforced in the same
manner, taking into account that the fee is imposed on non-settling manufacturers, as the taxes
imposed by the Tobacco Tax Law, as appropriate." Miss. Code Ann. § 27-70-5(4) (emphasis
added). Clearly, the NSM tax is not assessed against wholesalers like Corr-Williams and
Vicksburg Specialty. Nonetheless, in its pleadings submitted to the trial court and the CrossAppeal filed by the Department of Revenue, the Appellee seeks the assessment and collection of
the NSM tax, together with penalties and interest, from Wholesalers.
In support of its assessment position, the Department of Revenue relies on Miss. Code
Ann. § 27-70-19 and § 27-69-41 arguing that it is entitled to a jUdgment against Wholesalers in
the amount of the NSM taxes that were not assessed during the time of this litigation. The
Department of Revenue also asserts that it is entitled to a judgment against Wholesalers which
includes a ten percent (10%) penalty and twelve percent (12%) interest on the NSM taxes
pursuant to these statutes. However, the Department of Revenue' s interpretation of these statutes
is misguided and the logic in its conclusion is flawed.
Over the objection ofthe Wholesalers, after this Court's issuance of preliminary
injunctions for Wholesalers, they were required to post bonds in the amounts of $50,000 (CorrWilliams) and $60,000.00 (Vicksburg Specialty), respectively. (R. 161,201). As set forth by the
trial court, the bonds represented "the estimated six-month liability for the fee imposed by Miss.
5
Code Ann. § 27-70-5(1)(b) on manufacturers, excluding Commonwealth Brands, related to
cigarettes that are sold, purchased, or otherwise distributed in this state for sale outside of this
state" by Wholesalers. (R.E. 6, 9). From the language of its Orders, the trial court recognized
that the NSM tax was imposed on manufacturers rather than wholesalers and the injunctions
effectively enjoined the Department of Revenue from collecting the NSM tax from the nonsettling manufacturers selling cigarettes to Wholesalers. However, the Orders of the trial court in
no way implied or even intimated that the Wholesalers would be ultimately liable for this tax
assessment.
The Department of Revenue seeks payment of the NSM taxes, together with interest and
penalties, from Corr-Williams and Vicksburg Specialty, wholesalers of cigarettes produced by
non-settling manufacturers. However, such action is not authorized by Miss. Code Ann. § 27-701 et seq.
While Miss. Code Ann. § 27-70-19(1) states that cigarettes manufactured by a nonsettling manufacturer that has not paid the NSM tax are treated as tobacco subject to the
Tobacco Tax Law (permitting the imposition of penalties and interest), the statute also states that
"the manufacturer is subject to all penalties imposed by that act for violations ofthat act." Miss.
Code Ann. § 27-70-19(1) (emphasis added). Thus, as with the NSM tax, cigarette wholesalers
like Corr-Williams and Vicksburg Specialty are not subject to the penalties and interest
assessment as described in Miss. Code Ann. § 27-70-19, § 27-69-41, and § 11-13-15, and thus
the Department of Revenue's position is flawed in that it attempts to seek assessment of such
penalties and interest against Corr-Williams and Vicksburg Specialty. !fthe Department of
Revenue eventually prevails on its position, there is absolutely nothing that would prevent it
from assessing and collecting the NSM tax against the manufacturers.
6
CONCLUSION
Appellants Corr-Williams and Vicksburg Specialty join in Co-Appellant
Commonwealth's Brief. The Court should declare the NSM statute, at least as it applies to sales
of products by wholesalers like Corr-Williams and Vicksburg Specialty to retailers and
consumers in other states, to be unconstitutional. In addition, the Court should award CorrWilliams and Vicksburg Specialty costs and attorneys' fees. Finally, under no circumstances
should the Wholesalers be ordered to pay the NSM taxes. The NSM taxes at issue in this lawsuit
should be assessed by the Department of Revenue, and the manufacturers should pay the tax not Corr-Williams and Vicksburg Specialty.
~I,I-
RESPECTFULLY SUBMITTED, this the ~ day of January, 2012.
THE CORR-WILLIAMS COMPANY AND
VICKSBURG SPECIALTY COMPANY
BY:~(~
OF COUNSEL:
Stephen J. Carmody, Esq., MSB
Louis G. Fuller, Esq., MSB N "
Brunini, Grantham, Grower & Hewes, PLLC
190 East Capitol Street, Suite 100 (39201)
Post Office Drawer 119
Jackson, Mississippi 39205
Telephone: (601) 948-3101
Facsimile: (601) 960-6902
scarmody@brunini.com
Ifuller@brunini.com
7
" ..
_. . .
CERTIFICATE OF SERVICE
I, Stephen J. Carmody, do hereby certify that I have this day by United States mail,
postage prepaid, forwarded a true and correct copy of the foregoing document to:
Fred L. Banks, Jr., Esq.
Luther T. Munford, Esq.
R. Gregg Mayer, Esq.
PHELPS DUNBAR LLP
Post Office Box 16114
Jackson, MS 39236-6114
Robert J. Brookhiser, Esq.
Elizabeth B. McCallum, Esq.
BAKR HOSTETLER LLP
1050 Connecticut Avenue NW, Suite 1100
Washington, DC 20036
Gary W. Stringer, Esq.
P.O. Box 22828
Jackson,MS 39225
Honorable Patricia D. Wise
Hinds County Chancery Court
316 S. President St.
Jackson,MS 39201
f-
This, the3tfl!.- day of January, 2012.
Sp/~
Stephen J. Carmody
8